Epiroc AB (publ)

Welcome to the Epiroc Q4 results presentation. My name is Karin Larsson and I'm head of IR here at Epiroc and with me today in Stockholm to present the results I have our CEO Helena Hedblom and our CFO Anders Lindén. We will follow the same procedure as we always do with these presentations. We will start with a brief presentation of the results and then we do a Q&A session. And in the Q&A session, please keep it short. One question, at most two, to make sure that as many of you as possible can ask questions. But without further ado, Helena, please, the stage is yours.

Thank you, Karin. And welcome to EPROC's Q4 and full year presentation. I hope that you have had a good start in 2021. Before Anders and I go into the results and the development of our prioritized areas, I would like to say that I'm proud representing EPROC today and all our employees. Our employees really walked that extra mile during 2020. They have managed to cope with the short-term challenges related to the pandemic and made extraordinary efforts to support our customers. Also, they have continued to successfully deploy our technology solutions across the globe. As an organization, we have balanced the short-term and the long-term actions. We have adapted to the current situation and at the same time built an even stronger EPPROC for the future. So then we will try to summarize the full year. So EPROC showed agility in a challenging 2020. The COVID-19 pandemic affected us significantly in the year, but yet we managed to quickly adapt our way of working to lower our cost, prioritize innovation, show resilience in our profitability and deliver a solid result. And we managed to do this while prioritizing health and safety and supporting our customers in this very challenging situation. There was a significant impact on our business, particularly in the second quarter. But demand recovered in the second half of the year and orders were all in all flat organically versus 2019. Revenues decreased 5% organically to 36.1 billion SEK. Operating profit was impacted by the lower volumes and by currency. But still, with support from our efficiency actions and the growth in service, we're up 5% organically in service, our operating margin improved, both reported and adjusted. And we delivered a solid cash flow, operating cash flow over 7 billion SEC, which is even better than 2019. And we have a strong financial position. So the board has proposed a distribution to shareholders of 5.50 SEK per share through a dividend of 2.50 and in addition 3 SEK through mandatory redemption. We have also set sustainability goals for 2030 in line with the Paris Agreement. And we also improved our performance on most of our sustainability areas throughout the year. So all in all, I am pleased with the results in 2020, given the situation. If we then move over to the fourth quarter, Customer demand remained largely at the same level in Q4 as we saw in Q3, but it was stronger than Q4 2019. The activity supported our aftermarket business and we continue to see that our customers took decision to invest in equipment. As in Q3, majority of the orders were small and medium sized orders. So this means that all in all we achieved organic order growth in all our businesses, which is really good to see. We saw the highest growth in equipment and service. Sequentially, organic order growth was 2%. The revenue increased by 6% organically, with a solid growth for our aftermarket businesses. A strong aftermarket in combination with a successful cost savings contributed to an improved operating margin. a record high adjusted margin of 23.2%. And I am particularly pleased with a strong improvement in margin for tools and attachments. Our technology solutions continue to be in high demand. And in the quarter, we announced the agreement to acquire MineRP, which is a high quality mining software provider with significant experience of connecting mines from pit to port. We'll come back to that later on. So some comments on the financials. Anders will dive deeper into this later on, so I will be brief. Orders received increased 13% organically to 9.3 billion, as I mentioned. Equipment up 26% organic, service 9% organic and tools and attachments 5% organic. We also had a large negative currency effect of minus 12%. Revenues were 9.8 billion SEK, which is up 6% organically with strong growth in service. And operating profit increased 10%, despite the negative impact from currency. Adjusted margin improved more than 2 percentage points. And cash flow was solid and came in at 2.2 billion SEK. So despite the deteriorating situation with the pandemic, with increasing number of cases, the overall number of customers that were closed has been gradually trending down in the fourth quarter. But I would say that we still had an impact in some markets, for example, in the United States, as well as in Peru. From an operations standpoint, all our distribution centers and manufacturing facilities are operational, which is good. But there are still uncertainties regarding the pandemic development. And we still argue that the situation is stable, but fragile. And we are monitoring the situation very carefully. And we see some challenges in transports and in supply chain. But for the time being, we are managing. And we continue to work hard on prioritizing health and supporting our customers operations. So moving over then to an update on our priorities, if we start with innovation. So we are proud of our market leading solutions that are deployed and proven globally. And in Q4, automation, digitalization and electrification solutions continue to be in high demand. And we believe the trend is here to stay. As our solutions enable increased productivity, safety and sustainability for our customers. We have announced a game changer for explosive charging. Together with Orica, we have developed Avatel, a rig for semi-automating charging. But innovation is not only about creating new things. It's also about strengthening what is already good. So for example, we have expanded our range of SB breakers in the quarter. We have launched a new drill string for production drilling, which is perfect for autonomous machines. and we have upgraded our rig control system. But to strengthen our position as a technology leader and productivity partner, we also look for inorganic opportunities. And in Q4, we agreed to acquire MineRP, which is a software company specialized in increasing productivity for mines through integrated planning, execution and analytics. And this will give us a data integration platform with several expert systems specialized for the mining industry. And the combination of our expertise and MineRP's platform will support our customers on their digitalization journey. MinRP has about 200 employees and about 135 million SEK in annual revenues. And the acquisition is expected to be completed here in the first half of 2021. So a warm welcome to MinRP to the EPPROC group. Then over to our aftermarket, which represents roughly two-thirds of our revenue. So in these challenging times, we continue to support our customers to the best of our ability and to safeguard that they can run their operations. We also continue to strengthen our offering and our presence, for example, with focused service products and with investments in service facilities and in technicians close to our customers. And again, we see good results of our work with strong demand for our service products, And we have successfully increased our customer share. And we continue the work connecting the fleet because this gives us very valuable insights so that we can be more proactive in our aftermarket. As you know, at EPPROC, we continuously strive to be better, to improve and do things in a smarter way. And this is operational excellence for me. The cost saving program of more than 500 million SEK annually was implemented successfully with full impact already in Q3. And the positive trend on the functional cost was also noted in Q4. Many efficiency actions have been implemented around the world, including some in Sweden. And there are some savings from these in Q4, but some will also be realized this year. The supply chain improvement program continues according to plan and we see good results on improved availability of both parts and consumables. Other positive things are reduced environmental impact from transports and lower inventory levels. Some of the savings for examples on transports have unfortunately been offset by higher freight charges during 2020 due to the pandemic. Also we see the positive effect from our short-term actions that remains at a good level. On sustainability, I would like to start speaking about engagement. Because the year was challenging with quick changes in demand, we remained calm, we took the necessary actions, maintained our focus of being the best possible partner for our customers. And the passion and the dedication of our people made it happen. We had an employee survey at the end of the year. And it showed that Epprock is an appreciated employer. The engagement level actually increased in 2020 despite the pandemic, which is great to see. It's also good to see that our leadership index increased compared to 2019. It is in challenging times leaders are put at test. And I would say that our leadership model with clear accountability and our since long decentralized business model works well also in challenging times. I'm also pleased to see that we are improving in the area of safety. We are focusing on building a safety culture and we have a significant reduction in lost time injury frequency rate. Also good to see that our CO2 emissions continue to decrease, both from operations and from transport. So with that, I conclude this introduction and I hand over to Anders.

Thank you, Helena. From strong sustainability results to strong financial results, our reported operating profit increased 10% and reached 2 billion 212 million SEK. Despite the currency headwind, the organic growth in competition with cost savings supported the profit and the margin, of course. The operating margin was 22.6% or adjusted. 23.2%. This is the highest level achieved by Epiroc as a listed company. Quite an achievement, I would say. So, looking at the details in the bridge, compared to last year, the profit increased nearly 200 million. As you know, we have focused our actions on permanent cost savings rather than short-term actions, and these actions have come through, and we have seen good effects, which is visible in the bridge. Currency had a negative impact, as you can see, both in relative and in absolute terms. We had less impact from restructuring and other one-time items this year. This year, the LTI effect was the largest item affecting the comparability with 52 million. Excluding LTI and some relatively small restructuring costs, the margin was 23.2%. Last year, we had an adjusted margin of 20.7%. So it's 2.5 percentage points higher this year. On currency, we had a positive impact on the margin in the bridge last quarter, and this time it is negative. So coming into the segments, starting with equipment and service, which represents 75% of the revenues, we had a strong organic development on orders with 16% organic growth. Equipment was up 26% organically year on year, and service continued to grow plus 9%, almost the same level of growth as we had in Q3. Compared to the previous year, Orders received in local currency increased in all regions with the highest growth rates achieved in South America and in Asia-Australia. Orders increased for both underground and surface equipment and, as Helena already mentioned, with most of the orders being small or medium-sized. Revenue decreased 4% to 7 billion 456 million, mainly due to a large negative impact from currency minus 11%. Organically, revenues increased 7% with an organic increase of 13% in service. Profit was also contributed by the growth in service and from the cost savings, of course. This was positive for the margin, but let's discuss that more on next slide. Operating profit came in at 1,966,000,000, up 7%, despite the negative effect from currency. In total, the reported margin reached 26.4%, supported by the higher volumes, a better mix with more service and the cost savings. We had no restructuring costs in the quarter in this segment. Now, looking at tools and attachments. The orders received for tools and attachments also grew up 5% organically. Also here, a large negative effect from currency, minus 11% in the segment. The orders received increased both for hydraulic attachments and for rock drilling tools. In Europe, which is an important market, the orders grew double-digit growth in the quarter. Sequentially for this segment, we had plus 5% organic order growth. Revenues decreased 9% in SEC year on year. However, it increased 3% organically. In the reported operating profit, which increased 23% compared to previous year, and that is despite a negative currency impact. The actions that we have implemented to lower the costs, improve the efficiency and to optimize the product portfolio have given the results. The operating profit improved, as mentioned, and was 363 million SEK, including the restructuring costs of 15 million. Last year, we had restructuring costs of 17 million. We also had a one time cost last year related to an acquisition of 18. This you can see included in the structure, which is why you see a positive number in the bridge. The reported margin was 15.9% and adjusted for restructuring it was actually 16.5%. It is very good to see this development, but this hard work must continue. This graph on costs very much speaks for itself. We have successfully lowered our costs in administration and marketing year on year, also when taking currency into consideration. And to see the costs decreasing is, of course, good. This allows us to prioritize investments in innovation and in off the market. Financial net came in higher than last year with a large impact from exchange rates and the exchange rate differences. Tax expenses were 453 million and the tax rate was lower than the run rate at 21.7%. However, for quarters, tax rates can vary, but for the full year, the tax rate was 23.7%. And for the future, we keep our guidance to be below the 25%. We had a strong financial position already after the last quarter. And now, despite paying a second dividend in Q4, our position is even stronger. We ended the period with a net cash position of 4,137,000,000 SEK. So the board has proposed a dividend for the fiscal year 2020 of 250 SEK per share. and this is proposed to be paid out in two equal installments totaling 3 billion 15 million and this translates to a 56 percent payout ratio which is in line with our financial target of 50 percent over a cycle the board also proposes a distribution of three sec per share through a mandatory redemption in total this proposal adds up to 6 billion 633 million sec Networking capital compared to last year decreased by 20%, of which 13% from currency. We've made good progress compared to previous year, both in terms of receivables and inventory, and a lot of work, a lot of hard work here. As a percentage of revenues the last 12 months, this average networking capital was 33.8% compared to 34.4% last year. And the return of capital employed during the last 12 months were 21.7, affected negatively mainly by the accumulation of cash. Now, coming to the cash flow. Again, the organization has worked hard, which has led to a strong cash flow. Not as strong as last year, but still solid and at a very good level. The operating cash flow came in at 2,156,000,000 and the cash conversion rate remains at a high level above 100%. And to go into some, but not all the details compared to 2019, the profit was higher than last year. The net financial items were higher as were the taxes paid. The working capital decreased mainly due to reduced inventories. However, in 2019, we released even more cash from working capital in Q4. And even if in Q4 it was lower, for the full year, the operating cash flow was higher in 2020 than in 2019. And by that, I conclude the discussion on cash flows. Just as Helena started this presentation with some comments on the full year, I would like to end mine with a full year comment as well. Briefly on how we have fulfilled our financial goals in this extraordinary year. Starting with revenues, we have a goal of growing 8% per year. In 2020, we were organically impacted by the pandemic and revenues actually declined by 12%. Organic, it was down 5%. On margin, we improved the margin actually in 2020 compared to 2019, despite this challenging year. Capital efficiency. This year the return on capital employed is affected by the accumulation of cash, but still I believe we can do better on working capital. We have a goal of an investment grade credit rating and with a BBB plus rating we achieve this goal. And finally, on the dividend, the board has proposed a dividend of 250 SEK per share, which corresponds to a 56% payout ratio. And in addition, the board proposed a mandatory redemption of 3 SEK per share. So with that, I conclude the financial part and hand over to Helena again. Thank you.

Thank you, Anders. So if I then take a moment to summarize Q4, I would like to highlight this. We had organic growth in all business lines. Our profitability improved and we achieved a record margin. We had a solid cash flow. We see high demand for our leading technology solutions. We have agreed to acquire MineRP. We have engaged employees despite challenging times and we have improved our sustainability results further. And the board proposed a distribution of 5.5 SEK per share. So again, a great job done by the organization. So what to expect onwards? Well, we expect that the demand both for equipment and aftermarket will remain stable in the near term. But uncertainty, however, still remains regarding the COVID-19 development and any further related restrictions. So by that, I leave the word over to you, Karin.

Thank you, Helena. So, both Helena and Anders, thank you for a good presentation. It is now time for the Q&A session, and I do repeat myself, I would like you to keep it short, one question, maybe two at most, to make sure that as many of you as possible can ask questions. So, operator, please go ahead, open the line.

Thank you. If you wish to ask a question, please dial 01 on your telephone keypad without centric cue. Once your name is announced, your question can be answered. And if you find your question is answered before it's your turn to speak, you can dial 02 to cancel. Our first question comes from the line of Klaas Bergman of Citi. Please go ahead. Your line is open.

Yes. Hi. A couple of questions for me. First, Orders were again, as you say, Helena, driven by small and mid-sized orders, which is good as it signals underlying demand still strong. But I still wanted to ask you about the larger orders and the quotation activity. I mean, given where commodities are, we're looking at the copper price back at 2014 levels. Are we seeing the larger order pipeline improving at all, or will orders still be driven by the smaller and mid-sized orders? I know your guide for stable demand, but I also sense that the message in the guide is pretty prudent in light of COVID.

I think that the business cooking of the larger projects in the world, it's stable, I would say. And if we go back some quarters, then we saw decisions also on smaller orders being pushed out. I think what we have seen in the last two quarters now, both in Q3 and Q4, is more this underlying, you know, small and medium-sized replacements, et cetera, happening, which I also, you know, that's very positive. It's not really that it's built up on one or two large orders. But, you know, the pipeline when it comes to the business cooking or the large projects is still there.

Okay. That's good to hear. My follow-up, if I can, is on battery electric. When we go through the carbon pledges at the miners, there are some miners that are now talking about replanting its entire fleet underground to battery electric. Obviously, not within this year. It's got to take some time. It sounds pretty solid for you, considering gross margins being higher and so on. The likes of Codelco, in particular, talking about this. Helena, when do you think this talk and this interest can start to translate into hard orders. Yeah, that's my second one.

So I think there are two dimensions of this. When it comes to new capital equipment, that's of course what we see right now. But I think in parallel, we are developing retrofit capabilities, and that is also to address the existing fleet issues. Because, of course, to replace a fleet that still has several years to go just to do that conversion is, of course, a much more better economic value to do it retrofit. i see you know i think it will be it will be you know maybe five seven years now where we'll see both more and more electrified equipment of the new sales but also more and more retrofits happening you know where customers take the decision to transform their existing fleet into into electrification thank you

Thank you. And our next question comes from the line of Max Yates at Credit Suisse. Please go ahead. Your line is open.

Thank you. Just my first question is on the tools and attachments margin, and obviously very strong this quarter. Could you just help us understand a little bit what drove such a material sort of sequential step up? Was it primarily down to phasing of cost savings because the drop-throughs on organic growth look incredibly high. So I just wanted to understand kind of how we should contextualize that and potentially sort of also how much cost savings were in that number at this court. So just to understand really what's driven that.

So if we look at what we, you know, we have been addressing the portfolio first of all. We did that during 2019. We stepped out from some of the product lines. We also divested some product lines and we closed a number of factories. That was, of course, you know, in preparation to improve the margin. Then, of course, during this year, the pandemic has hit the tuition attachment volumes quite a lot, especially in the second quarter. But also we could see that in the third quarter. What we have seen now in the fourth quarter is that the division is back to growth again. which of course supports, but I would say the majority of the improvement really comes from the efficiency actions that we have taken during last year, 2020, but also the year prior to that. So a big portion of the efficiency actions we have taken sits within the tools and attachment division.

Okay, and maybe just a quick follow-up on the same division. I mean, as volumes obviously recover here going into 2021, what is your view on the longer term margin of this division and where it can get to? Are you still sort of the view of sort of mid-teens as a sensible medium term target? Or have you had any sort of changed views as a lot of the portfolio and restructuring measures have started to be embedded in the business?

I think I've been clear that I have not been happy with the level we have seen historically. And that's also why we have taken a lot of efforts into this area. Now, of course, it's about creating stability as well. You know, where we could take this long term, I would not speculate, you know, right now on that one. It's, of course, a lot of hard work to, you know, but we always continue to work on our efficiencies. But now, you know, I was really happy to see that we now start to get effect of, you know, the activities that we have taken throughout the year.

Okay, thank you very much.

Thank you. And our next question comes from the line of Guillermo Pena of UBS. Please go ahead, Guillermo.

Good afternoon, Helena, and thank you for your presentation. I wanted to ask about, you know, maybe a follow-up on the stable outlook question. Could you comment maybe between minerals and regions, what you see, anything that is different in any particular mineral in terms of demand or anything that is different in any particular region. That's the first question. Then I have a follow-up. I will wait for you to answer. Thank you.

When we look at the activity levels, there is, you know, clearly activity levels in gold, in copper and iron ore, I would say. When we look at the geographies, it's, you know, I would say it's roughly the same in all areas when it comes to equipment. Maybe on the aftermarket, as I said, you know, there's still an impact in some countries related to the pandemic. So, you know, it's copper, gold and iron ore. That's where we see the activities.

If I may ask, which regions are still impacted by the pandemic or is something that you want to keep for yourself?

I can say, you know, Peru is still impacted. The mining industry in Peru is still impacted. In U.S., we can see that both construction and mining is impacted when it comes to production levels or activity levels also in infrastructure.

Thank you very much. And then my second question is regarding MineRP. Could you comment a little bit about the growth profile and the margin profile of the business if you can?

As a minor piece, it's a technology company with a platform integration software company. And the combination of that technology with our, of course, connected machines, and our presence, that this is part of strengthening the capabilities in the digital space for us. If you have listened to the different presentations we have been doing around digitalization, this is a vital part in taking data from many expert systems and consolidate those data into a platform to create better value for the mining customers.

Thank you. Our next question comes from the line of Lars Borsum of Barclays. Please go ahead. Your line is open.

Thank you, Helena. Hi, it's Lars here. Maybe a follow up on the earlier question, large orders. I appreciate you're not really a large order business, so I don't want to belabor the point, but I just want to understand the impact in the quarter and in the third quarter I mean, we talk about ticket sizes above 30 million kronor that is categorized as large orders. I think typically we talk about large orders impacting quarterly order intake by, say, less than half a billion Swedish kronor or so. Maybe you can help us understand what that number was in the fourth quarter and what it was in the third quarter, appreciating third quarter had some both equipment orders, but also I think some larger midlife upgrade orders. So a little bit of scoping of that impact would be helpful. Thank you.

I think if we compare to, you know, many quarters before, I think historically we normally have more large orders. I think, you know, Q3 and Q4, it has been many, many more small and medium-sized orders. And I would say, you know, less than a handful of, you know, sizable orders, so to say. which I see as quite positive because that is really the underlying activity and demand out there.

And to be clear, in terms of your demand outlook, that means that larger orders would come on top of, should we say, your core demand outlook that is predicated on small and mid-sized orders.

I think on the large orders, they come and they go. They are not really well distributed. And of course, there are some in the pipeline. When that happens, that is very difficult to predict, as we have said. I think when we guide, of course, the underlying is the activity that we see.

Secondly, if I can ask Anas maybe on maybe provide somewhat of a consolidated view of your various savings plans and help us a little bit with what you expect in terms of real life savings for 2021. I mean, I've got three main pockets. It's your $500 million cost savings program. It's the additional savings that should be up to a couple of hundred million, I guess, and then temporary savings. And I wonder whether you can give us a number of what you expect each of those three to deliver in 2021, assuming that temporary savings will be a negative and offset savings that you achieve from additional and indeed your 500 million program.

Well, I can give you some details, but probably not to the level that you would have liked. Yes, the 500 million program is basically completed and we've seen it. It's been executed well. We will also see some cost savings come into next year. And so we continue to look for opportunities. But it will be to, let's say, lesser extent year over year. Remember that obviously we then get into, let's say, different comparables. So you shouldn't expect to see a significantly lower level organically in 2021 than 2020. Having said that, and I also would like, you said short-term savings. Well, we've been very clear that we have focused on long-term savings. So we have, let's say, prioritized the sustainable results. i think what what everybody will see once and mind you the pandemic is not over but once the pandemic is over and activity gradually comes back to some kind of normality we will see more let's see activities on the sales and marketing and things like that which is very very low activity and i mean long term this is not sustainable

I have 200 million to be realized in 2021 from your 500 million program, another 200 million from addition savings and then temporary savings coming back to the tune of 100 million. So net something that looks like a 300 million number. Is that a good starting point for this year?

You're not far off, but I cannot say yes or no.

Thank you. Thank you. Our next question comes from the line of Andrew Wilson at JPMorgan. Please go ahead. Your line is open.

Hi. Thanks so much for taking the question. If I can just start with, I guess, a broader question on the large orders and, again, sort of I feel like circling around on this. I'm interested in when you speak to the customers, what are the reasons for the delays? I mean, we're obviously seeing, I guess, the small and medium-sized orders starting to come through, which is obviously encouraging. I'm just interested, is this around things like permitting? Is it around things like, again, the licenses? Or is it just that you're still in a relatively fragile backdrop, and therefore it's simply a matter of time?

I think it's more related to internal processes. People are working from home, which creates some challenges also on that side. I think it's more that admin side rather than... And of course, planning an expansion of a mine is something you do really long term. It's years of planning before you actually take a decision to expand. And of course, our involvement with our customers starts much, much earlier than that. But I think when we see a delay, then it's more related to internal processes, I would say.

Okay, perfect. And just a quick follow-up, it probably wraps up. some of the earlier questions, but if I sort of look at the margin in the Q4, which obviously was very, very strong and certainly better than I guess we were expecting, and I think about sort of last comment around the relatively, I guess, you've got a little bit of support from cost savings to come through. I'm kind of struggling for reasons as to why, if I assume that the world is getting better and your revenue is going to be up here, that this sort of Q4 margin isn't quite a good runway to think about for 2021. Can you kind of, I guess, help me understand why I shouldn't be just extrapolating that through 2021?

Do you want to take that? Yeah, no, but I mean, I think a couple of things around this. First of all, I think we should remember that we're still in the pandemic and there are still, let's say, uncertainties. And without going into details, I mean, we know that we still have... border challenges and transportation challenges and etc so that's one thing to to remember when we look at this the other the other one i would like to to mention is if we look at the currencies uh currencies when we go into this year are lower than last year because the way you actually convert so you go in with a lower base in nominal terms then so think that I'm sure everybody is aware but since we have had a quite quite dramatic year when it comes to currency swings and a lower level going into 2021 and 2020 the base the baseline or the base for currency is lower

No, that's very helpful. I just wanted to understand that, you know, I mean, look, it's a very, very good result. So I don't want to kind of make you victims of that success. But just to understand that there's nothing, I guess, that you're calling out, which is truly exceptional in that Q4 number. And obviously, we can kind of go away and build in some of those headings which you talk about.

I wouldn't say there's anything extraordinary in Q4. It's a combination, I would say, of course, a combination of growth of the aftermarket and the efficiency actions that we have taken. And of course, if we look on orders received, of course, the last two quarters, we are growing faster on the orders now on equipment than on the aftermarket. So that, of course, will play into the numbers for 2021.

Yes. Thank you very much for the help.

Thank you. Our next question comes from the line of Madhav Narsingh of Bank of America. Please go ahead. Your line is open.

Yes, hi. Thanks for the call. This is Maddy Singh from Bank of America. So a couple of questions. The first one, just wanted to hear from you. What are your questions with your customers around greenfield projects? We understand your comments on large orders, but have you seen any appetite improving for greenfield projects, and are there any current serious discussions happening, and should we expect something soon on greenfield side?

and what i hear is more more focus on the brownfield and capturing the opportunities you know which is of course also from a time horizon it is of course much shorter timeline to expand something that is existing where you can reuse the infrastructure already if you compare it with the greenfield investment so what i hear is more focus on brownfield and secondly on

use of cash, given you have a strong balance sheet, but it is already impacting your returns. So if you do not find any, let's say, suitable M&A opportunities in 2021, should we expect an even bigger cash distribution or buyback program? What are the plans around uses of cash at this stage?

No, I mean, we can obviously don't speculate in that. But I think it's also fair to say that given the situation and still being in the pandemic, we want to safeguard the company by having a strong balance sheet and a strong cash position. And, of course, we have, and we've said that many times, that we are looking into different M&A targets and something we obviously can't specify in public. But we have a quite ambitious agenda on this.

Okay. Thank you. Thank you. Our next question comes from the line of Arsalan Abdallah of Deutsche Bank. Please go ahead. Your line is open.

Hi. Good afternoon. Just two questions. The first one is just looking at the quarter itself and given that obviously a lot of the tightening was happening in December. have you noticed sort of that has that been particularly challenging or has it been actually reasonably even in terms of the exit rate from the quarter going to next year? And the next thing is just the second question is to do with given obviously the strong commodity position and the growth you're seeing, are you finding obviously that's giving you some advantage in terms of pricing and pricing power there? And is that sort of linked to particular geographies or not?

Maybe I can start on that last question, then you can maybe comment on the currencies. I think, of course, when we talk about pricing and work with pricing, we always tie it together with generating more value, which is very much what we do in innovation, adding more technology features, more productivity, a safer solution, and then, of course, on the aftermarket with productivity and lower total cost of ownership. So we continue our focus and work with prices in the same way as we have always done. And so I feel very confident that we will be able to continue to work with pricing and at the same time, of course, bring more value to our customers. Okay, thanks.

Maybe if I then can say a few words about currencies. I've been basically working in finance in 35 years, and I can't remember a year which has been more challenging when it comes to many things, and currencies is one of them. Obviously, with the currency situation that we had in the beginning of the year, and then this dramatic change in the second part of the year, and even further so in Q4, with the dollar going down to... Our closing rate that we have used for closing our books at 18, which was the rock bottom, I would say now it's jumped back up a little bit. But as you know, we fix our rates when we consolidate and like everybody else. So it went down gradually in Q4 as well. And mainly the dollar, actually. Some other currencies were more stable. And with the dollar, many times goes the Chinese renminbi. But I mean, we work with about 50 different currencies and some of the most challenging countries in the world. So it's a little bit of a mix. And then they don't always go in the same direction.

Okay. And just actually following up from the previous thing on pricing power actually as well, just to clarify, is there do you find you have more of a position in certain – and there you have a stronger position you're finding in certain geographies versus other geographies where there is – you have more kind of control there?

I would say I don't see a difference per region. Of course, we see differences maybe for different segments and different type of customer base, which is, of course, there are customers that are very price sensitive. And there, of course, we need to come with another value proposition to be able to increase prices. So it's more that it's different type of customers and we need to work with pricing in a different way. rather than its difference between geographies.

Okay, great. And then just the first question on the exit for December going into 2021. Has that been particularly different to, let's say, the first two months of the quarter, given obviously much of the additional measures that were taken in December by governments?

from the pandemic standpoint. But I think we see, of course, restrictions. There are more and more restrictions in certain parts of the world. I think what we see is some challenges on the supply chain, as I mentioned, on the inbound and also on the transport, on the outbound side. But we are managing. I think we have also learned throughout this. It has been challenging times when it comes to supply chain throughout 2020 as well. But that is what we see. And of course, all suppliers are up running. We are up running everywhere. And of course, we are managing as everyone else with infected employees and quarantine employees and all of that. So of course, it is still an impact from the pandemic. But I wouldn't say that we have seen, I think the only thing we have seen the last couple of weeks is mainly on the transport side that we start to see that containers are in the wrong place in the world. And I think that's a global problem for the world.

Okay.

Thank you very much. Thank you. Our next question comes from the line of Joel Spungen of Berenberg. Please go ahead. Your line is open.

Yeah, good afternoon. Actually, I just wanted to pick up a little bit on what you were just mentioning there. You mentioned a few times now about transport and logistics costs. And I was just wondering if you could maybe elaborate a little bit how significant those costs are for you. You know, to what extent is the surge in sea freight, for example, likely to have a meaningful impact on the business? I guess the pressures there have only really intensified since the start of 2021. So, yeah, if you could just help us understand maybe some of the sort of cost pressures that might come through there in a little bit more detail. Yeah.

The cost pressure is mainly on air freight, and that has been the case throughout last year. And certain lanes have been extremely high in air freight. So as part of this supply chain transformation program, we have... you know gradually throughout the year moved moved more and more volumes from air to sea and that has of course offset some of this this impact but there is still an impact uh you know that offset some of the the transportation savings that we we we expected to see from this shift from air to to sea and are you able to maybe just give us a rough sense of how much the group spends on logistics costs in an average year Let us come back on that. Karin can come back. She's nodding here.

Okay, thank you.

Thank you.

Thank you. Our next question comes from the line of Robert Davies at Morgan Stanley. Please go ahead to your line is open.

So, yeah, thanks for taking my question. The first one was just really around the transiting on the aftermarket side. I was just having a look at how your sort of outperformance, I guess, versus one of your closest peers that evolved through the year. You obviously had quite a big spread, I think, earlier in the year where you've been citing midlife refurbishments and upgrade activity in particular as being a kind of key driver behind your outperformance.

just be keen to get an update of where things stand there how that sort of mapping of the fleet exercise is going how much more runway you've got what what the opportunities are that was my opening question thank you yeah but we continue the work uh as we have done you know the last couple of years now or for several years now you know mapping the fleet and understanding and i think we're becoming more and more precise in our aftermarket offering And that has supported the growth. There is contribution during this year related to our service products, you know, the specialized service products like the midlife rebuild or the customer engineered solutions or... You know, different type of products like the rig scan product that we have, for example. But there is also work, you know, to capture more agreements on the fleet. You know, different type of service agreements. So we have, you know, a quite wide set of service agreement products as well. And that is also part of growing the customer share is also about agreement penetration. And that is also contributing to the numbers or to the growth. When I look at opportunities to continue to grow the aftermarket, it's to continue this journey on, first of all, connectivity, of course, is an enabler. Because if we connect the feet, then we know where the machines are. And that makes it possible also for us to serve machines towards segments that is more project oriented. In the construction industry, for example, where machines move around and it's smaller customers. We typically have a harder time to reach those customers with our direct sales model. And connectivity here, of course, is an enabler for us to develop a different type of service products also for that customer segment, for example. So I see that we will continue this journey with connectivity. you know understanding the fleet have them connected work with service projects for the mining industry work with service projects for for different type of subsets of our customers and tailor-made our aftermarket offering so that we are more precise and that we can capture a bigger share both from an agreement standpoint as well as customer share of parts thank you um and then just my follow-up question is just around i guess the theme of esg and it's obviously

getting huge amount of interest in the last year. I'd just be interested if over the last sort of six, 12 months, your views have sort of changed at all in terms of any new products or technologies that you might want to either develop internally or potentially different sort of M&A candidates that you've started to think about in light of trying to provide miners with new solutions, new technologies that are maybe a bit more outside of the scope of what you traditionally did. I'd be interested if there's any changes there. Thank you.

But, you know, the technology clearly opens up for new opportunities as well, also in the aftermarket. So that is an area that we're looking into.

Okay. Thank you. Thank you. Our next question comes from the line of Christian Hinderaker of Liberum. Please go ahead. Your line is open. Yes, hello.

Thank you, Helen and Anders, for the chance to ask the question. I was going to ask about the mix of servicing, but you covered that up with Robert. So perhaps you could comment on Q4 conditions within infrastructure and whether we might see similar sort of digital-focused partnerships in M&A in that division as we have seen within mining. And that's it for me. Thank you. Did you capture that?

partnerships in infrastructure, like in mining.

On the customer side. Can you please repeat it?

Yes, sorry, Helen. So I just wanted to ask if you could comment on conditions within the quarter, within the infrastructure business in terms of growth and profitability, and whether you might see similar digital-focused partnerships and acquisitions as we have seen in your mining business. Okay.

So I think, you know, the general, I think, you know, as I comment, I think Europe was strong from an infrastructure standpoint in Q4. We also see good activities in Asia picking up, but U.S. is still sluggish. So I think that represents fairly well also, you know, where we have our biggest exposure to or revenue coming from infrastructure. So very strong in, or it was really strong in Europe also. and good in China and Asia, I would say, in general, and weaker in the U.S. When it comes to digitalization and the new technology, absolutely we see opportunities. Very often we develop technologies for the mining industry, but then we take the same technology and we move it into construction or infrastructure. That's how we benefit from all the investments we do organically. So, of course, that is also, you know, there is opportunities when it comes to both partnership and M&A, as well as, of course, to take the technology we develop for the mining segment into the infrastructure segment as well.

So, sorry, everyone, for interrupting.